One of these stocks is a Dividend King; the other has raised its dividend for 39 straight years.
Large caps, particularly technology and growth stocks, have been more volatile this year, as valuations have shot close to 25-year highs after a three-year bull market.
Some experts and market watchers have sounded the alarm that a correction could be coming, due to the high stock valuations, but also shaky geopolitical and macroeconomic forces.
Image source: Getty Images.
As an investor, it is impossible to know what’s coming, although history is often a good guide. But what any smart investor should do is prepare their portfolio for the possibility to maximize gains in any type of environment.
A great way to do this is to add strong dividend stocks to your portfolio. Not only did they generate income or boost total return when reinvested, but they are also typically value stocks, which tend to perform better in downturns.
Here are two great dividend stocks provide both income and diversification.
Spice and Spam
If the market undergoes a correction or heads sideways for a spell, investors may want to turn to a couple of consumer staples companies that have a long history of consistently generating dividends and outperforming during market downturns.
One is Hormel (HRL +1.41%), the maker of the canned meat product Spam, along with Skippy peanut butter, Dinty Moore beef stew, Planters nuts, Hormel Chili, and other food staples. These are products that are always popular, but they tend to become more sought-after during difficult economic times. It’s mostly canned foods or less expensive items that people stock up on when budgets are stretched.
Going back to 2008, Hormel has outperformed the S&P 500 index in the year when the large-cap benchmark was either negative or had small, 1% or 2% returns.
The same is true for McCormick (MKC 0.19%), the venerable spice maker that first opened its doors in 1889.
Like Hormel, McCormick makes spices that are more popular during downturns, because people eat in more often, and use spices to give more flavor to cheaper, basic meals. And it also performs better than the larger markets when they are down or sluggish.
Dividend King with a high yield
Both of these stocks have struggled in recent years, with negative returns over the past one- and five-year periods.
But their dividends remain strong. Hormel is a Dividend King, having increased its payout for 59 consecutive years. It also has one of the highest yields among S&P 500 stocks at 4.69%.
McCormick is not far behind, with 39 straight years of dividend increases and a high yield of 2.85%.
Both stocks also have solid upside, according to analysts. Hormel has a median price target of $27.50, which would suggest 12% upside. McCormick has a median price target of $73 per share, which would represent an 8% return over the next 12 months.
With the potential for volatility in 2026, these stocks might provide some nice ballast, reliable income, and some downside protection in a growth-oriented portfolio.